Des Moines Register
04-26-06
Producers fear ethanol backlash
The corn-based fuel additive is not having much of an effect on pump prices in
Iowa.
PHILIP BRASHER AND ANNE FITZGERALD
REGISTER BUSINESS WRITERS
Washington, D.C. — Farm groups and ethanol makers fear that the corn-based
fuel additive will get the blame for the soaring pump prices in cities where ethanol
is being added to gasoline.
Prices at the pump have topped $3 a gallon in some Eastern cities, and the
American Automobile Association has warned mid-Atlantic motorists that they
may see shortages of gasoline as refiners switch to ethanol from another
additive, MTBE.
Several cities, including Philadelphia, Dallas and Norfolk, Va., have been hit by
spot shortages of gasoline as distributors switched between the different
mixtures of gasoline.
To ease the shortages, President Bush directed the Environmental Protection
Agency on Tuesday to consider giving states temporary exemptions from cleanfuel requirements. Pennsylvania Gov. Ed Rendell asked the EPA last week for a
waiver. Virginia Gov. Tim Kaine is being pressed by gasoline dealers in his state
to request a similar waiver.
"Energy experts predict gas prices are going to remain high throughout the
summer, and that's going to be a continued strain on the American people," the
president said in a speech to the Renewable Fuels Association, where he
promoted use of ethanol and other biofuels.
The requests will be considered on a case-by-case basis to prevent additional
shortages, said Al Hubbard, director of Bush's National Economic Council. The
exemptions would be good for 20 days.
Ethanol is having less of an effect on pump prices in Iowa, the leading producer
of ethanol. And supporters of the ethanol industry say they don't think consumers
in farm states will blame the product for gas prices. But the industry has mounted
a public relations campaign with the news media in hopes of avoiding a backlash,
especially on the East Coast.
Media reports in Philadelphia and elsewhere have played up the ethanol link to
prices. A few members of Congress have suggested increasing supplies by lifting
a 54-cent-per-gallon duty on imported ethanol, but the idea does not appear to
have broad support.
"People need to realize that ethanol has been — and still is — the best buy for
the consumer," said Lucy Norton, managing director of the Iowa Renewable
Fuels Association in Johnston. "Ethanol is what's offering consumers a lowerpriced fuel, whether it's in Iowa or in Connecticut."
In the end, oil companies may be more likely to get a black eye than ethanol
producers. Consumers "are much more skeptical of the oil industry than the
ethanol industry," said Rep. Stephanie Herseth, D-S.D.
Refiners are phasing MTBE out of gasoline this spring because of lawsuits
related to pollution problems the product has caused. The wholesale price of
ethanol has jumped as a result.
Oil industry officials say they had to stop using MTBE when they were unable last
year to persuade Congress to give them protection from lawsuits.
Ethanol has struggled to overcome image problems for years, including concerns
that it would ruin engine parts, or that the fuel was a political boondoggle that
existed because presidential candidates wanted to curry favor with Iowa farmers.
Norton and others believe the industry has put such perceptions to rest.
So far there's been little evidence that ethanol faces a political backlash over the
MTBE switch.
"I don't think at this point that ethanol is getting a bad rap," said Jeff Miller,
president of Norfolk-based Miller Oil Co., which operates 40 stations. Consumers
"probably don't even know what ethanol is."
Stations in the Norfolk area, where AAA says the price of regular is averaging
$3.02 this week, were hit particularly hard by shortages that were triggered when
a major gasoline terminal in the area was down for five days during the
switchover. Those shortages in turn caused motorists to rush to fill up their cars,
creating lines at stations, Miller said.
Robert Wisner, an Iowa State University Extension economist, said prices at
the pump vary from one region to another for various reasons, including states'
tax policies and fuel distribution systems.
In the East, for instance, storage tanks will have to be cleaned to accommodate
ethanol, Wisner said. In addition, fuel filters may have to be changed.
"That's a one-time expense," Wisner said. "I don't foresee this becoming a major
bump in the road for the industry. I think it will easily survive this."
Officials in the oil industry acknowledge that ethanol is only one factor in the
rising price of gasoline, but they say the switch from MTBE has created logistical
and supply problems that can create spot shortages.
Ethanol must be shipped by truck or rail rather than through pipeline. Gasoline
also must be made with a different formula if ethanol is going to be added to it.
"There's a lot of logistical things we have to do to switch to ethanol from MTBE,"
said Frank Maisano, an energy industry lobbyist. "These are obviously short-term
glitches that we are having and will continue to have."
Concerns about the United States' reliance on foreign sources of energy also
have helped drive support for ethanol and other renewable fuels.
"This is a home-grown alternative, and I think it has a lot of appeal to
consumers," Wisner said.
Ultimately, economics - and what happens in the oil and gas markets - will
determine the fate of the burgeoning biofuels business, said Iowa State
economist John Miranowski.
"Gasoline prices respond fairly quickly to crude oil prices, and ethanol prices
respond to what's happening in the gas market. If ethanol gets too expensive,
demand will drop," Miranowski said. "It's all about the money."